Folks, it’s a confluence of positive news flow: Solar stocks such as Trina (TSL), LDK Solar (LDK), Yingli Green Energy (YGE) — well, okay, every stock in the group — are rising today, propelled by at least a couple of large positive factors.
The most immediate spur: Regional elections in Germany over the weekend saw a surge in support for the Green party, including in Chancellor Angela Merkel’s conservative heartland of Baden-Wurttemburg. The victory comes amid what seems to be a crescendo in anti-nuclear fervor, with 200,000 people marching in Berlin, Cologne, Hamburg, and Munich, report the Financial Times’s Quentin Peel and Jennifer Thompson, with demands for an immediate shut-down of Germany’s 17 nuclear power plants.
The Associated Press’s Juergen Baetz last week reported that Merkel and other politicians have made “a complete U-turn” in their support for nukes.
Adding fuel, if you will, to solar’s rise, the hand-wringing over Italy seems to be drawing to a close. With some tentative outlines for a reconciliation over solar energy subsidies in that country last week, Italian industry minister Paolo Romani is expected to offer a final ruling perhaps this week or next, bringing the matter to a close.
The “tone and sentiment” of the Italy talks last week was good, says Jeffrey Bencik with Kaufman Brothers. “All the talk was of increasing renewables at the expense of nuclear.”
Jefferies & Co. analyst Jesse Pichel told me late last week by phone that Romani may be realizing that Italy can create more jobs with solar power than with nukes. “it was really the nuke lobby that sought to kill solar,” remarks Pichel.
“We do think the market has over-reacted to Italy,” said Pichel, referring to the worries over subsidy cuts. “Here’s an industry that sold out every year, that grew 30% in 2009. And here we are over-analyzing italy, which was something like less than 20% of the market in 2010.”
Pichel thinks the discussion last week tilts the policy revamp to a volume-based, rather than a dollar-based limit on solar installations in Italy, which is, he argues, what he has been expecting since February.
“2011 is going to be uncapped,” says Pichel, referring to limits on solar installations in Italy, “with a modest cut in the second half [of this year.] On a go-forward basis, the country will set some corridor at two gigawatts per year from 2012 through 2016 to limit to no more than $6 bill euros per year.”
Pichel argues, moreover, “Italy is not crucial to the global growth of solar,” given that the U.S. is still “a pretty small market” for solar, and the Chinese have barely begun to install the stuff, even though they produce most of it. “Look at what Chinese did in the wind industry,” says Pichel. “They became biggest in the world in four years.”
On that score, Wayne Chang with Brean, Murray, Carret & Co. last week offered some detailed thoughts on China’s plans for renewables. The latest five year plan involves a new plan from the department of energy that may be unveiled any day now. Overall, the plan laid out is for China to go from 8.3% of energy coming from renewables last year to 11.4% in 2015. Chang cites data showing China could represent a 60-gigawatt-per-year market for solar installations by 2020.
As for Italy, Chang thinks the country is “still going to be fairly meaningful” beyond 2011, with installations probably not limited to the 2-gigawatt corridor that Pichel talked of, but perhaps 4 gigawatts or more of installations. “it’s everyone’s guess in coming to a conclusion,” says Chang. “You posture according to your thesis.”
Chang thinks North America will be “more positive” going forward than many expect, on a state-by-state basis, with significant opportunities in the power generation industry. He also says average prices for solar modules, worldwide, have rebounded from a recent $1.60 or so, on average, and are not likely to see a drastic decline later this year.
Timothy Arcuri with Citigroup remarks “There will be closure at last” on the matter of Italy, but he does expect more sharp declines in module prices, which will actually be a good thing, in his view.
If there’s going to be a corridor of 2 gigawatts or so in Italy, “that’s a pretty substantial decline from the run-rate last year,” Arcuri told me by phone.
“How is the industry going to find the demand to meet 17 gigawatts or so of production? Probably, the result is that module prices come down to $1.25 or so by year’s end, from $1.65 now.”
Probably, the industry will be “like it was a couple of years ago,” when module prices came down sharply, says Arcuri.
From here, though, things look “pretty good” for the stocks, he thinks. “Once you’ve got module prices trending toward a buck or so, you can see a big opportunity a couple of years out when you’ve got price elasticity.”
And, “In the meantime, you’ve got these other markets, the U.S., China. China will probably be a 4-gigawatt or 5-gigawatt market in a year or two.”
“You will be able to get beyond all this nonsense in Europe.”
Lest you think everyone’s capitulated, Credit Suisse’s Satya Kumar today writes that “Investors are hyper-focused on Italy subsidy trends,” but that in his opinion, “a plain vanilla oversupply is quietly brewing” because there may be more than 500 megawatts’s of “excess inventory in the channel.”
Following a meeting last week with China’s National Development and Reform Commission, he doesn’t believe that “China will be a backstop for demand until much later in the cycle. We think pricing will need to fall sharply in 2H11.”
Nevertheless, Kumar today advises as relatively better placed the shares of JinkoSolar Holdings (JKS), MEMC Electronic Materials (WFR), and ReneSola (SOL), with First Solar (FSLR) having gotten a bid ahead of itself, he thinks.
Article courtesy of Tech Trader Daily
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